I am Forbes' Opinion Editor. I am a Senior Fellow at the Manhattan Institute for Policy Research, and the author of How Medicaid Fails the Poor (Encounter, 2013). In 2012, I served as a health care policy advisor to Mitt Romney. To contact me, click here. To receive a weekly e-mail digest of articles from The Apothecary, sign up here, or you can subscribe to The Apothecary’s RSS feed or my Twitter feed. In addition to my Forbes blog, I write on health care, fiscal matters, finance, and other policy issues for National Review. My work has also appeared in National Affairs, USA Today, The Atlantic, and other publications. I've appeared on television, including on MSNBC, CNBC, HBO, Fox News, and Fox Business. For an archive of my writing prior to February 2011, please visit avikroy.net. Professionally, I'm the founder of Roy Healthcare Research, an investment and policy research firm. In this role, I serve as a paid advisor to health care investors and industry stakeholders. Previously, I worked as an analyst and portfolio manager at J.P. Morgan, Bain Capital, and other firms.

Exterior of the Internal Revenue Service office in midtown New York. (Photo credit: Wikipedia)

Today, the Congressional Budget Office announced the results of a new analysis of the Affordable Care Act’s individual mandate, the law’s provision that forces Americans to buy health insurance or face a fine. According to CBO, 11-12 million uninsured Americans will be subject to the mandate; the agency expects more than half of them to pay the fine instead of buying insurance. But there’s something that the CBO didn’t say: as more people pay the “tax penalty” instead of buying insurance, premiums for everyone else will go up, potentially triggering a death spiral in the private insurance market.

(DISCLOSURE: I am an outside adviser to the Romney campaign on health-care issues. The opinions contained herein are mine alone, and do not necessarily correspond to those of the campaign.)

Back in June, the Supreme Court surprised most observers—including me—by deciding in a 5-4 decision that Obamacare’s individual mandate was a constitutional “tax,” even though Congress did not consider it to be a tax but rather a penalty for not buying health insurance. But I made the point at the time that, whatever the constitutionality of the mandate, the rule suffers from a fatal flaw: it’s too weak.

The point of the individual mandate is to mitigate the effects of adverse selection. Obamacare forces insurers to take all comers, even if they’re already ill, incentivizing Americans to wait until they’re sick to buy health insurance. As a result, the law contains an individual mandate, forcing nearly all Americans to buy health insurance, or pay a fine.

But the CBO estimates that, of the 30 million U.S. residents it expects to be uninsured in 2016, 18 to 19 million are exempt from the mandate. There are around 10-12 million illegal immigrants in the U.S., and illegal immigrants are exempted from the mandate. Other residents are exempted from the mandate: those with low incomes, members of Indian tribes, and those whose premiums would exceed 8 percent of their income.

Of the 11 to 12 million Americans who are left, the CBO estimates that about 6 million will pay the mandate penalty in 2016, gaining the government $7 billion in revenue that year. Part of the problem is that many individuals will not admit to the IRS that they are uninsured, leading to a reduction in the enforcement of the mandate.

“Among the uninsured individuals subject to the penalty tax, many are expected to voluntarily report on their tax returns that they are uninsured and pay the amount owed,” observes the CBO. “However, other individuals will try to avoid payments. Therefore, the estimates presented here account for likely compliance rates, as well as the ability of the Internal Revenue Service…to administer and collect the penalty.”

Because Obamacare does so many other things to drive up the cost of insurance, these forecasts are likely to increase over time. More and more people—especially young, healthy people—will choose to pay the $695 fine instead of spending 10 times that on health insurance. As they do, the individual mandate will fail in its central purpose: forcing all Americans into the insurance system, so that premiums don’t increase for the chumps who pay for insurance year-round.

And it’s quite possible that the CBO’s numbers are too optimistic. We know that CBO’s insurance models borrow heavily from the work of Jonathan Gruber, the MIT economist who in 2010 declared “for sure” that Obamacare would reduce insurance premiums, only to reverse his position after the law was passed.

In a January 2012 report to the State of Colorado, Gruber admitted that his model “cannot incorporate the effects of the ban on pre-existing condition exclusions,” noting that while the “ban will cause a rise in premiums,” his model “cannot predict the net impacts of these factors on premiums.” It’s a remarkable admission, given that the ban on pre-existing condition exclusions is central to how Obamacare radically alters the private insurance market.

Gruber and other ACA supporters have regularly over-promised and under-delivered on Obamacare’s alleged benefits. Nowhere is this more true than with President Obama’s oft-made promise that his health law would “bring down premiums by $2,500 for the typical family.”

Conservative opponents of Obamacare have focused on the fact that the Supreme Court called the individual mandate a “tax,” giving them a political opportunity to score the President for yet another tax increase. But the real problem with Obamacare is what it will do to the cost of health insurance. Every 10 percent increase in the cost of health insurance is a silent, $1,600 tax on every American family, healthy or sick. That is the true cost of the “Affordable Care Act.” It will make health insurance even less affordable for people who are just getting by today.

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You have courage for admitting you are an advisor to the Romney campaign on THIS issue. But you make unsubstantiated assumptions.

“But there’s something that the CBO didn’t say: as more people pay the ‘tax penalty’ instead of buying insurance, premiums for everyone else will go up, potentially triggering a death spiral in the private insurance market.”

They didn’t say it because its just your guess. - Why did the private insurers support Obamacare? - Why wouldn’t the exchanges create insurance competition? – essentially implementing the GOP wish to allow purchasing of insurance across state lines BUT with quality safeguards. - Why wouldn’t the newly covered avoid a lot of ER care, the cost of which is now passed on to the rest of us? - Why couldn’t the penalty be used to by the government to buy insurance for remaining uncovered?

- Why did the private insurers support Obamacare? If you were an insurance company, wouldn’t you want a law that supposedly forced people to buy your product? Also, thug politics plays a small role here. Probably some PR as well.

- Why wouldn’t the exchanges create insurance competition? – essentially implementing the GOP wish to allow purchasing of insurance across state lines BUT with quality safeguards. Competition only exists if it’s your money you’re spending. One huge reason health care is expensive is that the buyer doesn’t directly feel the cost of the care. We, the buyers, don’t choose based on actual cost, only based on the co-pay, which varies very little from doctor to doctor.

- Why wouldn’t the newly covered avoid a lot of ER care, the cost of which is now passed on to the rest of us? One of the main reasons people don’t goto ER now is because it’s so expensive. If it’s a weekend, they’ll wait until a weekday. In a way it’s more convenient, because you don’t need an appointment, and don’t have to miss work. Take away the cost, and why wouldn’t you go to an ER, where you don’t need an appointment?

- Why couldn’t the penalty be used to by the government to buy insurance for remaining uncovered? Probably for the same reason social security taxes aren’t used for social security. Most if not all of the existing programs like this are in the red. Government does not spend money as efficiently as if it were spent by the individual.

I just read today’s CBO’s report from yesterday on the ACA and it does not comport with your analysis. To wit, you claim that 11-12 million people will be subject to the mandate. But the 11-12 million number refers to part of a group of people who will be granted exemptions from the mandates penalty. The report states that 6 million people will be subject to the mandates penalty, not 11-12 million.

It’s almost as if you didn’t read the report and just saw the numbers 11-12 million and came up with you own meaning for those numbers. Here is what the CBO’s report said yesterday so that readers can see what I mean.

“The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) have estimated that about 30 million nonelderly residents will be uninsured in 2016, but the majority of them will not be subject to the penalty tax. Unauthorized immigrants, for example, who are prohibited from receiving almost all Medicaid benefits and all subsidies through the insurance exchanges, are exempted from the mandate to obtain health insurance. Others will be subject to the mandate but exempted from the penalty tax—for example, because they will have income low enough that they are not required to file an income tax return, because they are members of Indian tribes, or because the premium they would have to pay would exceed a specified share of their income (initially 8 percent in 2014 and indexed over time). CBO and JCT estimate that between 18 million and 19 million uninsured people in 2016 will qualify for one or more of those exemptions. Of the remaining 11 million to 12 million uninsured people, some individuals will be granted exemptions from the penalty because of hardship, and others will be exempted from the requirement on the basis of their religious beliefs.

After accounting for those who will not be subject to the penalty tax, CBO and JCT now estimate that about 6 million people will pay a penalty because they are uninsured in 2016…”

I reread it 20 times and this is the key part: “After accounting for those who will not be subject to the penalty tax,” there is 6 million people left that will be subject to the penalty if they do not get insurance. It doesn’t say that after accounting for those who are exempt AND those that simply won’t pay the penalty that there are 6m who will pay. Notice it says out of the 11 to 12mm some will be granted exceptions for religious and other reasons. Its clear the final number is the tally of the final remaining uninsured subject to the penalty.

My wife and I had a combined income of over $90k This year we both had our hours cut to part time and lost our health benefits as a result. Now she finds out that she has a rare kidney disease and her meds are $1000 a month. Will we have to pay the mandate penalty at our new $37000 yr. income? What is the cutoff on AGI to avoid the penalty? We are struggling now and wonder if there is light at the end of the tunnel for us since paying the penalty does not get us / anyone health insurance under this Obamacare.

http://laborcenter.berkeley.edu/healthpolicy/calculator/ U.C. Berkeley Labor Center – “How Much Will a Family Save Under the New Federal Health Law?”

It would appear that your out-of-pocket costs at your new reduced income will be extremely affordable. And your wife will be covered WITHOUT regard to her pre-existing condition.

You can find lots more information about the A.C.A. here … http://www.healthcare.gov/law/index.html “The health care law and you”

Another very useful article is here … http://www.alternet.org/story/156149/10_reasons_most_people_like_obamacare_once_they_know_what%27s_really_in_it ” 10 Reasons Most People Like Obamacare Once They Know What’s Really In It – People are suspicious of Obamacare in the abstract, but when it gets to the specifics they tend to like it a lot better.”

I am sorry about your employment situation and wish you the best. At least health insurance doesn’t have to be at the top of your list of worries. Good luck.